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Monday, August 26, 2013

Britain’s Economy is Starting to Recover – Because Conservative Policy Was a Failure, Not A Success

How Can That Be –
Read On

The British economy has been under attack by the
Conservative government for about three years and the results have been
predictable. The austerity program
implemented by the Conservative party which is in control of Britain’s
economic policy produced the usual results, recession and unemployment. But new numbers are
beginning to show some recovery.

A
sunny bundle of numbers certainly suggests that Britain’s economy is on the mend.
Surveys that measure consumer confidence show shoppers are feeling positive:
vital in an economy in which consumption makes up two-thirds of spending.
Surveys suggest managers’ purchasing plans are at record highs across
construction, manufacturing and services.

Much
of the upswing comes from better news on housing. Prices are rising across the
country. Mortgage costs are lower. Britons with a big deposit can now borrow at
1.5%; even those on higher loan-to-value ratios have seen rates plunge. With
interest payments down, disposable income is up. That explains the rosy outlook
of shoppers and rising consumption. Since estate agents, lawyers and banks make
up a decent chunk of services output, it also helps explain why managers in the
service sector are feeling optimistic.

So does this mean the
Conservative policy has been a success?
Well no, British GDP is below pre-recession levels and not expected to
get to it’s previous high for several more years. Britain is having some success in spite of
not because of Conservatives, in part because of a recovery in housing and in
large part because London and south England is a very desirable place to live,
assuming one is rich and can live anywhere.

But another reason why Britain may be starting to
recover is that
real wages have dropped, what Economists call internal deflation.

British
workers have suffered one of the biggest falls in real wages among European
countries over the past three years, with only crisis-hit Greece, Portugal
and the Netherlands
doing worse.

New figures collated by the House of Commons
Library show a 5.5 per cent drop in wages after inflation since 2010. This
follows other recent national statistics on the rising cost of living and a
substantial fall in living standards since the first of George Osborne's
austerity budgets was delivered three years ago.

This of course is one of the classical Keynesian
concepts for economic recovery. A drop
in real wages due to inflation makes labor less expensive and so employment
does not fall as much as it might have otherwise, which has been the case in Britain. But if wages are down 5.5% how exactly has the working class been made better off?

Of course all of this news comes at a
price.

Professor John
Van Reenen, director of the Centre for Economic Performance at the London
School of Economics, described the fall in real wages in the UK as
"stunning – and something that did not happen in previous postwar
recessions in Britain". He said the weak performance reflected poor growth
and linked it to falling GDP and national income, "which is now 3.5 per
cent smaller than it was before the financial crisis".

In other words, large numbers of people had to be
made worse off, with lower paying jobs and lower real income in order to make a
few better off. Conservative economic
policy in a nutshell.